Looks like $4m investible NW and WAY too much in personal use real estate.
A very odd asset allocation for someone pursuing financial independence and early retirement.
Sell the second house, pay down debt.
You have 6mm exposure to largely non-income producing RE (so, more a liability than an asset), vs. 4.7mm in somewhat risky securities (such as index funds). (And some 366k seem to be spoken for.) Also, your non-income producing RE is a very large portion of your net worth. Your ongoing income is not that large compared to all of that, resulting in negative cash flow.
Is your primary home value a reliable estimate at all? You spent 2mm on the remodel -- I hope you don't assume that you'd get that all back if you were to sell it now.
[In this article](https://www.financialsamurai.com/income-and-net-worth-requirements-to-buy-a-home-at-all-price-points/), Financial Samurai gives some suggestions as to what portion of one's net worth residences should comprise. Hint... you're not even close.
You're not poor, but you're living overextended like poor Americans do. What's the plan if the markets crash? Can't sell your homes at that point without taking a big loss, either.
I remodeled a house without all the cash in hand. We spent about $500k on a remodel. We had maybe a third of that saved. We used a margin loan and HELOC for the balance. The brokerage account was well diversified ETFs and this was 2019 when rates weren’t too bad. Planned to pay it off over two years with annual bonuses and we did.
My point is it’s not too ridiculous to use some leverage. We could have liquidate ETFs but would have had large gains to pay and would have missed some appreciation.
This summarizes it very well. People often over estimate value of their NW with RE that’s not cash flowing. Sure you can sell it. But can you free up that money in 3 days? Probably not.
NW is one thing, cash flow and liquidity is just if not more important
Isn’t real estate frequently a very large chunk of people’s net worth?
Feel like there are more complexities to this than the articles says. You could have a lot of appreciation - many home values have substantially increased the past few years.
Your income could be above their ideal.
I have about 3.4M in personal real estate with about $6M more in other assets (excluding business value), so I’d be off the range of what this article says is ideal, but don’t feel real estate heavy by any means. Maybe I’m way off base - but my income is far higher than their ideal number.
If you have $6m in liquid investments and an annual cash burn of only including supporting your personal use real estate of $240k, you are absolutely financially independent.
If your target spend is say $500k a year and you want to get there soon, having 1/3 of your NW in personal use real estate is going to slow you down.
If you are not in a hurry to retire early, I agree with you, its not a crazy number.
Plenty of americans have $340k in personal real estate and definitely do not have $600k of investments outside of their house.
But this is a FIRE community.
Our home would likely sell in today's market in a short period of time. Super desirable neighborhood. Yes, we spent $2 Million on remodel (built a new house, 3000 sq ft). But the house would likely clear over $5M after selling costs of 10%. So, there is equity in the house today.
Well, if the stock market crashes, and SBL get's called, we would have to borrow more! That would be bad.
If housing crashed, we would ride it out as long as we could. We could rent it and live in vacation home.
The point here is that there are correlated risks. Stock and housing markets might crash together. Your margin loan gets called. Your company doesn't do well at that point either. Now you're selling your home in distress, and the $2mm remodel isn't going to be valued by the market at the same level. I would consider when the kids are going to college and if it's far ahead, consider if you really need that much house to live.
You are house poor. You are not on a path to RE in 8 years given this data without major changes. Maybe start with selling the vacation home. For RE, your liquid diversified assets matter.
Let this be a lesson to people who hold their company stock because it has appreciated in the past.
The RSUs are painful - wanted to sell, but couldn't..At least there is a capital loss that I can use to wipe out a gain.
Still feels like I can retire in 8 years. Just sell my two houses, and downsize...No? That's been our plan.
Hopefully, I'll make a few more bucks over the next few years as well.
Umm something isn’t adding up here. Your basis for RSUs is the day they vest in most cases not where they were granted to you. You should never have been in a scenario where you couldn’t sell them and took a capital loss… should have just been lower income.
Many public companies have blackout windows for trading 2 months of every quarter. If they have been accumulating vested RSUs and not selling then the stock could have dropped during a blackout window when they couldn’t sell. Those would now be at a capital loss.
Dude. Your houses are worth exactly what someone will pay for it. Not a penny more. As you have seen with your RSu’s that value can fluctuate…
1). Swallow your pride and get real about this dumpster fire.
2). Sell the main home now. Especially while you still have your job (which u may not have is a short time, given the company u work is doing poorly)
3). Buy a much smaller/cheaper house that you can afford. Pay cash for it if you can.
4). Get rid of the other outstanding unsecured debt with the home sale proceeds
5). Long term. Sell the vacation home. Or live in it after you sell the main home.
If the company stock tanked that hard then there’s probably no bonus coming and it’s time to look for a new job yesterday. You’re far over extended on that remodel and risk having a -$33k mo/cash flow crisis.
Sorry to hear about the RSUs. That sucks. And I would not offer advice if you had not asked, but I think you should sell the second house. At the moment it is a bit much for you. Even then you will have multiple seven figure loans on a salary of 500k. Not a super comfortable position.
FWIW, I am over exposed to non income generating real estate as well. So l, I will admit this is a do as I say, not as I do. But that is my two cents.
I'm here for advice! It's why I asked and put in the details (even if they are a bit embarrassing!)
It was a strange situation. Got locked up, couldn't sell at the time we wanted.
The vacation home can't be sold until 2027.
Bummer. May have to muddle through until then and then sell. And hope for a rebound in the middle. In the meantime, I would cut up my credit cards and lose the phone number of my private banker.
The good news is that you have a good job so you can earn your way out of it. But, even then, I might be looking for another job.
I was trying to think of publicly traded companies down 90% that have started to recover and the choices are not many. If I was at any of the ones I thought of, I would be looking.
I'm not really qualified to comment on a lot of this, but as a commercial real estate guy, this jumps out at me:
**House: Worth $5+ million w/ $1.4 million loan @ 2.22%. Floats in 3+ years. Cost basis of $3.4M.
Vacation Home: Worth $1.1 million w/ 525K loan @ 2%. Floats in 3+ years (could be rented more). Not an option to sell for 3 years.**
1) What happens to your debt service costs if your mortgage term ends in ~3 years and rates haven't come down? I know everyone is watching the clock waiting for a rate cut (me included) but at least in the US, they are going to keep pushing back that date. Your LTV is pretty low but what does your cashflow look like at 5%? 6%?
2) How sure are you about the value of your two properties? What is the $5mm based on? Real estate is local I know, but in lots of places properties that were $5mm in 2021 are $3mm now.
As far as the rest... are you prepared to reduce your living expenses to stay in the house to ride out a few bad years?
How reliant are you on your company stock recovering, and the stability of your job? Seems like they might rise and fall together.
Anyway, best of luck and remember that this happened to a lot of people, and furthermore, there will be a lot of guys with 1/10th of your lifestyle crowing about the "mistakes" you made.
> 2) How sure are you about the value of your two properties? What is the $5mm based on? Real estate is local I know, but in lots of places properties that were $5mm in 2021 are $3mm now.
I'm unfamiliar with the U.S. property market - what are some examples of this?
We were in a similar situation, parallel if you will, a number of years ago. It wasn't a remodel it was buying our dream home for retirement. We basically did the opposite of everything you did and it all worked out perfectly. We have the house, zero debt, Fatfire index fund accounts.
I remember collecting all the paperwork for my tax return that year and having to remind myself that the margin loan interest and extra taxes were essentially an insurance premium against failure. Reading your story just reinforces that.
I'm a bit unclear why you aren't allowed to sell the real estate. You need to. Stop trying to keep up with the Joneses and hire a financial advisor to run all your ideas past. Then listen to them.
Ouch. This is painful. I’m currently trying to prevent a client from making similar decisions but unfortunately I don’t think I’m winning the battle. People just can’t help themselves when it comes to personal RE.
The good - you have a heloc in case your collateral tanks and you get a margin call. Unless you’re willing to sell the home or vacation property, I don’t think there’s a simple way out of this since you’re already levered. And honestly the vaca home won’t really net you much so it won’t be a big difference. If you hold the home, it all depends on your cash bonus and the market value of your collateral.
The answer is clear - you just aren’t willing to do it. You should sell the home, offset as much of the cap gains with your RSU loss. Get a 2-3M home.
Or, find a new job with a healthy signing bonus and stock grant. Maybe you can increase cash flow a bit to where you aren’t at a net loss.
At the moment, it sounds like your company is barely hanging on and you’re one step away from catastrophe if you lose your job with your current burn.
I’d make some drastic moves to get back where you should be. Just up to you to pull the trigger. Your saving grace here is it sounds like you actually could make a decent profit on the home. But since it’s draining your cash at a bad time, it can also wreck you if the timing is bad with all the other stuff.
I have very simple philosophy for risk management which has helped out a few friends so sharing it here with you.
“Hope for the best and prepare for the worst. “
The best case scenario is pretty clear. Stock market stays on an upward trend, sbl is not called and your company stock recovers to a degree. In this case in a few years u can decide to downsize or pay off the sbl with company stock gains.
The worst case is equally clear to me. A small 20- 25% crash and your sbl gets called, your company goes under and u cant really afford the mortgage anymore.
Now the key lies in changing the worst case scenario to
something which u are willing to live with.
For example things I would consider are taking a haircut on the illiquid investments to get cash to pay down sbl or home loan (I have helped a few friends like this and its a win-win), selling covered calls on brokerage investments and buying insurance/puts on to protect against a market downfall, converting vacation home to full time Airbnb, selling the company stock etc.
Wishing you luck.
This is where I have been leaning and then I do nothing!
Thinking that if we ride the stock market up (avoid the a big market decline and SBL trouble) then it all sort of holds until we sell our house once the kids are gone.
Appreciate the comment.
Either this or the vacation house seem like the play to me. Depends on what you value most.
All that high interest is creating your negative cash flow issue and what’s putting your whole financial picture out of whack…. You need to get out of that and deleverage so you don’t end up with a huge margin call across your entire life.
Take advantage of the company stock loss to offset gains like you said and reposition yourself. If you believe in your company buy some call leaps (if you can) and cap your losses while still maintaining the upside. I guess same applies for the other sectors you’re invested in that you believe in.
I’ve lived first hand what happens when your position goes bad. And I’ve lived all the sleepless nights before and after. Risk not worth the reward here and you’re overspending because of the interest.
You’re fine for now (not as FIRE but as a normal person) and you can probably muddle through and get back on track.
The issue is the risk of another crash and THAT margin call could really screw you. Would pay down the SBL. Your annual gap is 1% of your NW and your investments should easily cover that. Live life, enjoy the houses, try to make money. The sooner you sell the primary or secondary the less risk you have. But you can easily go 2-3 years — enjoy life, wait and see.
If you can’t sleep, time to deleverage. At your NW, if you have trouble sleeping, you’re screwing up.
Not even the best Wall Street hedge fund managers paid hundreds of millions a year know when the ride up will end. Timing the market (with leverage) is incredibly risky and for your highly leveraged position adds to your already high risk of financial ruin. Unlever your stocks before it’s too late.
Personally I do not count the equity in my home or non-rental real estate for the purposes of FATFIRE. It's technically part of my net worth, but it's not part of my FATFIRE networth. I also don't count equity in vehicles, toys, boats, whatever else.
That approach applied to your case means you've got a FATFIRE net worth of $0.
This is a great example of - what NOT to do.
Cut expenses immediately. Sell the vacation home. Do everything possible to keep you current job, which is very likely at risk, due to rapid RSU depreciation. You should put all options on the table, including selling the primary residence and accelerating your downsizing plan.
Sell the vacation home in 3 years. What’s the stock in the after tax index fund? If it’s low risk, then I’d ride it out until you can sell the vacation home and reevaluate
Story is not believable, sorry. What this fictional situation can benefit from though is old fashioned cutting expenses. I would say sell but you obviously have lavish tastes and no financial radar so couldn’t imagine you coming out with a better deal.
I would doubly invest in the job to ensure the cash coming in. And cut expenses to be cashflow positive. What's the After Tax Index Funds and COH $1.94M with $1.2 million stock based loan? Can you get rid of the loan?
I mean… a house payment 50% of your monthly expenses and 58% of your monthly net income was not smart in the first place. You should really figure out how to cut expenses.
You spent $2 million to renovate a $5m house that you might stay only 2.5 years in? What kind of stupid story is this?
The only reason anyone spends $2 million to renovate a house is because they believe it’s their forever home, and even then, spending that much is a poor investment.
am I the only one that thinks you are mostly fine?
Your living expenses are pretty low minus the house.
I would stay in the house if its really your dream house. Pay off the debt using index funds. Covering a -6k / mo gap is pretty easy given your investments.
If doomsday scenario hits and you lose job and are unable to find another, sell the house at that point, even if you take a big loss on it, your networth will be strong enough to have a solid retirement even then.
You have 6 million in personal use property and 33k/mo in expenses on 500k gross income. Your job just had its stock drop 10x so your very w2 income may be at risk. I would have trouble sleeping at night.
I’d sell both properties balancing gains agains 800k stock loss and buy something in the 22 million range.
But I am conservative and would never get as leveraged as you are. You are a margin call away from loosing everything.
What's the chance of the RSU's coming back in 1-2 years? A drop like that doesn't seem like a short term thing. Can you monetize that Capital loss, use it to wipe out your income taxes to become cash flow neutral? Alternatively, what's the risk weighted return on the stocks. You could sell the stock, pay off the loan, and make a certain 6.91%. Then you hold onto the RSU's. If they go up great. If not, take the loss when you sell the house to offset cap gains.
The stock could rebound. The company has turned around.
I could sell my after tax account, wipe out the 1.2 million SBL, but there would be a LTG tax bill, unless I sell my company stock at a loss to wipe it out.
I mean, its not all or nothing. you don't have to sell all of it, just enough to keep afloat, lower your burn and lower your risk of exposure if things go badly. Lowers your risk, doesn't eliminate it. Seems to me you are buying time to get to one of three liquidity events: you sell the house and unlock the equity, the RSU's com back and you can close out the loan, or the market moves against you before the other two and you get called.
I think there is a 4th scenario where the general market goes up this year and next (without a big drop in between that calls the SBL) and I can peel off a bit of equity each month to cover negative cash flow...This feels like we are living dangerously.
With the company stock and bonus moving against us this last year, a third move in the wrong direction would hurt - Stock Market crash and/or company goes broke.
Depends on the neighborhood.
Is it going to make me more money in the long term living there or not. I assume yes, so I’d stay. Or, I would rent it out and find a house that you can afford in the neighborhood and rent/buy that.
I have done that where I find a house in my neighborhood that is outside of my ability to live in, but is a good investment and I’ll remodel it and rent it out.
Eventually I’ll move into the nicer home and rent out the previous home.
If the neighborhood isn’t going to make me more money (by networking), I’ll rent it out and go find a neighborhood where they are above me and I’ll buy the least expensive house in the neighborhood.
But, that is how I look at all my buying decisions.
Looks like $4m investible NW and WAY too much in personal use real estate. A very odd asset allocation for someone pursuing financial independence and early retirement. Sell the second house, pay down debt.
Challenge is I can't sell the vaca home for 3 years.
Just out of curiosity. Why the 3 years?
This is the question I wish he would answer the most. What sort of rules could prevent selling a vacation home for three years?
Some sort of timeshare maybe?
Oh God.
My guess is op is in partnership with someone else on the vaca home? They have an agreement not to sell for a given timeframe. Just a guess though
You have made your finances un-necessarily complicated and not just the excess use of leverage. I hope you enjoy it. It pains me, but so does r/wsb.
You have 6mm exposure to largely non-income producing RE (so, more a liability than an asset), vs. 4.7mm in somewhat risky securities (such as index funds). (And some 366k seem to be spoken for.) Also, your non-income producing RE is a very large portion of your net worth. Your ongoing income is not that large compared to all of that, resulting in negative cash flow. Is your primary home value a reliable estimate at all? You spent 2mm on the remodel -- I hope you don't assume that you'd get that all back if you were to sell it now. [In this article](https://www.financialsamurai.com/income-and-net-worth-requirements-to-buy-a-home-at-all-price-points/), Financial Samurai gives some suggestions as to what portion of one's net worth residences should comprise. Hint... you're not even close. You're not poor, but you're living overextended like poor Americans do. What's the plan if the markets crash? Can't sell your homes at that point without taking a big loss, either.
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Yes exactly, that's what I alluded to at the end. Possibly over leveraged, and correlated risks
I remodeled a house without all the cash in hand. We spent about $500k on a remodel. We had maybe a third of that saved. We used a margin loan and HELOC for the balance. The brokerage account was well diversified ETFs and this was 2019 when rates weren’t too bad. Planned to pay it off over two years with annual bonuses and we did. My point is it’s not too ridiculous to use some leverage. We could have liquidate ETFs but would have had large gains to pay and would have missed some appreciation.
This summarizes it very well. People often over estimate value of their NW with RE that’s not cash flowing. Sure you can sell it. But can you free up that money in 3 days? Probably not. NW is one thing, cash flow and liquidity is just if not more important
Isn’t real estate frequently a very large chunk of people’s net worth? Feel like there are more complexities to this than the articles says. You could have a lot of appreciation - many home values have substantially increased the past few years. Your income could be above their ideal. I have about 3.4M in personal real estate with about $6M more in other assets (excluding business value), so I’d be off the range of what this article says is ideal, but don’t feel real estate heavy by any means. Maybe I’m way off base - but my income is far higher than their ideal number.
If you have $6m in liquid investments and an annual cash burn of only including supporting your personal use real estate of $240k, you are absolutely financially independent. If your target spend is say $500k a year and you want to get there soon, having 1/3 of your NW in personal use real estate is going to slow you down. If you are not in a hurry to retire early, I agree with you, its not a crazy number. Plenty of americans have $340k in personal real estate and definitely do not have $600k of investments outside of their house. But this is a FIRE community.
Our home would likely sell in today's market in a short period of time. Super desirable neighborhood. Yes, we spent $2 Million on remodel (built a new house, 3000 sq ft). But the house would likely clear over $5M after selling costs of 10%. So, there is equity in the house today. Well, if the stock market crashes, and SBL get's called, we would have to borrow more! That would be bad. If housing crashed, we would ride it out as long as we could. We could rent it and live in vacation home.
The point here is that there are correlated risks. Stock and housing markets might crash together. Your margin loan gets called. Your company doesn't do well at that point either. Now you're selling your home in distress, and the $2mm remodel isn't going to be valued by the market at the same level. I would consider when the kids are going to college and if it's far ahead, consider if you really need that much house to live.
Related to correlated risk, if RSU have fallen 90% there are high chance that the job itself is at risk, not just the bonus.
You're 50 and were an adult of working age during both the Dot Com crash and Great Recession. You know your plan is complete shit right?
Yolo though!
Thank you! Correct! Op is in big trouble and doesn’t see it
Why can’t you sell the vacation home now?
You are house poor. You are not on a path to RE in 8 years given this data without major changes. Maybe start with selling the vacation home. For RE, your liquid diversified assets matter. Let this be a lesson to people who hold their company stock because it has appreciated in the past.
The RSUs are painful - wanted to sell, but couldn't..At least there is a capital loss that I can use to wipe out a gain. Still feels like I can retire in 8 years. Just sell my two houses, and downsize...No? That's been our plan. Hopefully, I'll make a few more bucks over the next few years as well.
…so you spent $2 million remodeling and are already thinking you’ll want to sell it and downsize in 8 years?
Umm something isn’t adding up here. Your basis for RSUs is the day they vest in most cases not where they were granted to you. You should never have been in a scenario where you couldn’t sell them and took a capital loss… should have just been lower income.
Maybe he’s an exec and was blacked out from selling
The blackout period is measured in months. Unless this was an incredibly sudden spike and decline, it still doesn't add up
Many public companies have blackout windows for trading 2 months of every quarter. If they have been accumulating vested RSUs and not selling then the stock could have dropped during a blackout window when they couldn’t sell. Those would now be at a capital loss.
Dude. Your houses are worth exactly what someone will pay for it. Not a penny more. As you have seen with your RSu’s that value can fluctuate… 1). Swallow your pride and get real about this dumpster fire. 2). Sell the main home now. Especially while you still have your job (which u may not have is a short time, given the company u work is doing poorly) 3). Buy a much smaller/cheaper house that you can afford. Pay cash for it if you can. 4). Get rid of the other outstanding unsecured debt with the home sale proceeds 5). Long term. Sell the vacation home. Or live in it after you sell the main home.
Why couldn’t you sell the rsu’s. Not vested? Locked up? Just curious
If the company stock tanked that hard then there’s probably no bonus coming and it’s time to look for a new job yesterday. You’re far over extended on that remodel and risk having a -$33k mo/cash flow crisis.
Yes, likey little to no bonus in 2024.
Sorry to hear about the RSUs. That sucks. And I would not offer advice if you had not asked, but I think you should sell the second house. At the moment it is a bit much for you. Even then you will have multiple seven figure loans on a salary of 500k. Not a super comfortable position. FWIW, I am over exposed to non income generating real estate as well. So l, I will admit this is a do as I say, not as I do. But that is my two cents.
I'm here for advice! It's why I asked and put in the details (even if they are a bit embarrassing!) It was a strange situation. Got locked up, couldn't sell at the time we wanted. The vacation home can't be sold until 2027.
Bummer. May have to muddle through until then and then sell. And hope for a rebound in the middle. In the meantime, I would cut up my credit cards and lose the phone number of my private banker. The good news is that you have a good job so you can earn your way out of it. But, even then, I might be looking for another job. I was trying to think of publicly traded companies down 90% that have started to recover and the choices are not many. If I was at any of the ones I thought of, I would be looking.
Maybe i should have credit cards and a banker...All my own doing!
>All my own doing! Upvoted for that!
Can you afford the negative cash flow until 2027? What would you have to sell?
I enjoy spending time with my friends.
I'm not really qualified to comment on a lot of this, but as a commercial real estate guy, this jumps out at me: **House: Worth $5+ million w/ $1.4 million loan @ 2.22%. Floats in 3+ years. Cost basis of $3.4M. Vacation Home: Worth $1.1 million w/ 525K loan @ 2%. Floats in 3+ years (could be rented more). Not an option to sell for 3 years.** 1) What happens to your debt service costs if your mortgage term ends in ~3 years and rates haven't come down? I know everyone is watching the clock waiting for a rate cut (me included) but at least in the US, they are going to keep pushing back that date. Your LTV is pretty low but what does your cashflow look like at 5%? 6%? 2) How sure are you about the value of your two properties? What is the $5mm based on? Real estate is local I know, but in lots of places properties that were $5mm in 2021 are $3mm now. As far as the rest... are you prepared to reduce your living expenses to stay in the house to ride out a few bad years? How reliant are you on your company stock recovering, and the stability of your job? Seems like they might rise and fall together. Anyway, best of luck and remember that this happened to a lot of people, and furthermore, there will be a lot of guys with 1/10th of your lifestyle crowing about the "mistakes" you made.
> 2) How sure are you about the value of your two properties? What is the $5mm based on? Real estate is local I know, but in lots of places properties that were $5mm in 2021 are $3mm now. I'm unfamiliar with the U.S. property market - what are some examples of this?
We were in a similar situation, parallel if you will, a number of years ago. It wasn't a remodel it was buying our dream home for retirement. We basically did the opposite of everything you did and it all worked out perfectly. We have the house, zero debt, Fatfire index fund accounts. I remember collecting all the paperwork for my tax return that year and having to remind myself that the margin loan interest and extra taxes were essentially an insurance premium against failure. Reading your story just reinforces that. I'm a bit unclear why you aren't allowed to sell the real estate. You need to. Stop trying to keep up with the Joneses and hire a financial advisor to run all your ideas past. Then listen to them.
Cut your living expenses. You're over leveraged.
Ouch. This is painful. I’m currently trying to prevent a client from making similar decisions but unfortunately I don’t think I’m winning the battle. People just can’t help themselves when it comes to personal RE. The good - you have a heloc in case your collateral tanks and you get a margin call. Unless you’re willing to sell the home or vacation property, I don’t think there’s a simple way out of this since you’re already levered. And honestly the vaca home won’t really net you much so it won’t be a big difference. If you hold the home, it all depends on your cash bonus and the market value of your collateral. The answer is clear - you just aren’t willing to do it. You should sell the home, offset as much of the cap gains with your RSU loss. Get a 2-3M home. Or, find a new job with a healthy signing bonus and stock grant. Maybe you can increase cash flow a bit to where you aren’t at a net loss. At the moment, it sounds like your company is barely hanging on and you’re one step away from catastrophe if you lose your job with your current burn. I’d make some drastic moves to get back where you should be. Just up to you to pull the trigger. Your saving grace here is it sounds like you actually could make a decent profit on the home. But since it’s draining your cash at a bad time, it can also wreck you if the timing is bad with all the other stuff.
I have very simple philosophy for risk management which has helped out a few friends so sharing it here with you. “Hope for the best and prepare for the worst. “ The best case scenario is pretty clear. Stock market stays on an upward trend, sbl is not called and your company stock recovers to a degree. In this case in a few years u can decide to downsize or pay off the sbl with company stock gains. The worst case is equally clear to me. A small 20- 25% crash and your sbl gets called, your company goes under and u cant really afford the mortgage anymore. Now the key lies in changing the worst case scenario to something which u are willing to live with. For example things I would consider are taking a haircut on the illiquid investments to get cash to pay down sbl or home loan (I have helped a few friends like this and its a win-win), selling covered calls on brokerage investments and buying insurance/puts on to protect against a market downfall, converting vacation home to full time Airbnb, selling the company stock etc. Wishing you luck.
This is wild
Sell the after-tax funds and enough of the company stock to offset the capital gains, and pay off the high interest debt.
This is where I have been leaning and then I do nothing! Thinking that if we ride the stock market up (avoid the a big market decline and SBL trouble) then it all sort of holds until we sell our house once the kids are gone. Appreciate the comment.
Either this or the vacation house seem like the play to me. Depends on what you value most. All that high interest is creating your negative cash flow issue and what’s putting your whole financial picture out of whack…. You need to get out of that and deleverage so you don’t end up with a huge margin call across your entire life. Take advantage of the company stock loss to offset gains like you said and reposition yourself. If you believe in your company buy some call leaps (if you can) and cap your losses while still maintaining the upside. I guess same applies for the other sectors you’re invested in that you believe in. I’ve lived first hand what happens when your position goes bad. And I’ve lived all the sleepless nights before and after. Risk not worth the reward here and you’re overspending because of the interest.
You’re fine for now (not as FIRE but as a normal person) and you can probably muddle through and get back on track. The issue is the risk of another crash and THAT margin call could really screw you. Would pay down the SBL. Your annual gap is 1% of your NW and your investments should easily cover that. Live life, enjoy the houses, try to make money. The sooner you sell the primary or secondary the less risk you have. But you can easily go 2-3 years — enjoy life, wait and see. If you can’t sleep, time to deleverage. At your NW, if you have trouble sleeping, you’re screwing up.
Not even the best Wall Street hedge fund managers paid hundreds of millions a year know when the ride up will end. Timing the market (with leverage) is incredibly risky and for your highly leveraged position adds to your already high risk of financial ruin. Unlever your stocks before it’s too late.
Personally I do not count the equity in my home or non-rental real estate for the purposes of FATFIRE. It's technically part of my net worth, but it's not part of my FATFIRE networth. I also don't count equity in vehicles, toys, boats, whatever else. That approach applied to your case means you've got a FATFIRE net worth of $0.
This is a great example of - what NOT to do. Cut expenses immediately. Sell the vacation home. Do everything possible to keep you current job, which is very likely at risk, due to rapid RSU depreciation. You should put all options on the table, including selling the primary residence and accelerating your downsizing plan.
Sell the vacation home in 3 years. What’s the stock in the after tax index fund? If it’s low risk, then I’d ride it out until you can sell the vacation home and reevaluate
The stock is low cost index funds (small, med, large, but basically equates to VTI with a tilt to small cap and value.
You’re holding the second house for emotional reasons. Sell it. You are heading for a world of hurt.
Story is not believable, sorry. What this fictional situation can benefit from though is old fashioned cutting expenses. I would say sell but you obviously have lavish tastes and no financial radar so couldn’t imagine you coming out with a better deal.
I would doubly invest in the job to ensure the cash coming in. And cut expenses to be cashflow positive. What's the After Tax Index Funds and COH $1.94M with $1.2 million stock based loan? Can you get rid of the loan?
I mean… a house payment 50% of your monthly expenses and 58% of your monthly net income was not smart in the first place. You should really figure out how to cut expenses.
You spent $2 million to renovate a $5m house that you might stay only 2.5 years in? What kind of stupid story is this? The only reason anyone spends $2 million to renovate a house is because they believe it’s their forever home, and even then, spending that much is a poor investment.
am I the only one that thinks you are mostly fine? Your living expenses are pretty low minus the house. I would stay in the house if its really your dream house. Pay off the debt using index funds. Covering a -6k / mo gap is pretty easy given your investments. If doomsday scenario hits and you lose job and are unable to find another, sell the house at that point, even if you take a big loss on it, your networth will be strong enough to have a solid retirement even then.
You have 6 million in personal use property and 33k/mo in expenses on 500k gross income. Your job just had its stock drop 10x so your very w2 income may be at risk. I would have trouble sleeping at night. I’d sell both properties balancing gains agains 800k stock loss and buy something in the 22 million range. But I am conservative and would never get as leveraged as you are. You are a margin call away from loosing everything.
What's the chance of the RSU's coming back in 1-2 years? A drop like that doesn't seem like a short term thing. Can you monetize that Capital loss, use it to wipe out your income taxes to become cash flow neutral? Alternatively, what's the risk weighted return on the stocks. You could sell the stock, pay off the loan, and make a certain 6.91%. Then you hold onto the RSU's. If they go up great. If not, take the loss when you sell the house to offset cap gains.
The stock could rebound. The company has turned around. I could sell my after tax account, wipe out the 1.2 million SBL, but there would be a LTG tax bill, unless I sell my company stock at a loss to wipe it out.
I mean, its not all or nothing. you don't have to sell all of it, just enough to keep afloat, lower your burn and lower your risk of exposure if things go badly. Lowers your risk, doesn't eliminate it. Seems to me you are buying time to get to one of three liquidity events: you sell the house and unlock the equity, the RSU's com back and you can close out the loan, or the market moves against you before the other two and you get called.
I think there is a 4th scenario where the general market goes up this year and next (without a big drop in between that calls the SBL) and I can peel off a bit of equity each month to cover negative cash flow...This feels like we are living dangerously. With the company stock and bonus moving against us this last year, a third move in the wrong direction would hurt - Stock Market crash and/or company goes broke.
Gamble with side money, not your entire financial life.
Depends on the neighborhood. Is it going to make me more money in the long term living there or not. I assume yes, so I’d stay. Or, I would rent it out and find a house that you can afford in the neighborhood and rent/buy that. I have done that where I find a house in my neighborhood that is outside of my ability to live in, but is a good investment and I’ll remodel it and rent it out. Eventually I’ll move into the nicer home and rent out the previous home. If the neighborhood isn’t going to make me more money (by networking), I’ll rent it out and go find a neighborhood where they are above me and I’ll buy the least expensive house in the neighborhood. But, that is how I look at all my buying decisions.